Revision or enhancement when lack of enquiry by AO is ground - action against AO must be a precondition for revision or enhancement against assessee - a point of view:
Relevant provisions and links:
Sections 251 and 263 of Income-tax Act,1961.
Enhancement and Revisions:
While deciding an appeal preferred by assessee the CIT(A) can also enhance assessment. In such enhancement one of ground for enhancement can be that the AO did not make proper enquiry and allowed claim or excessive claim of assessee.
In case of revision under section 263 one of popular reasoning or ground taken by CIT is that the AO did not make proper enquiry and allowed claims of assessee.
Revision of assessment and other orders for alleged lack of enquiry by AO:
Now-a-days issue of notice for revision of orders alleged to be erroneous in so far prejudicial to the interest of revenue, are very popular and handy tools taken by revenue merely on alleged ground of lack of proper enquiry by AO and is very much in practice.
Usual practice- no mention about claims allowed:
We find that in scrutiny assessment AO make enquiry on all closely related, indirectly related and even remotely related and even unrelated issues. This is because standard questionnaires, requisitions and method of copy and paste are followed by many of officers in a very casual manner. This is evident from fact that details of information which are already available in the Return of Income, tax audit report and audited accounts submitted by assesse.
We find requisitions issued contains many unrelated matters or matters not applicable in case of concerned assessee. These can be found in the requisitions issued by AO by way of notices and show cause notices and also by way of noting in order sheet. Many items are enquired by way of verbal requisitions or instructions to the assessee or his Authorized Representatives at the time of hearing.
Assessee in his own interest reply to all such queries and requisitions made by the AO.
Assessment order- not speaking about claims accepted:
As per usual practice, in scrutiny assessments the AO discusses, in assessment order, only issues about which he made addition or disallowance. There are rarely discussion on issues which did not require any addition or disallowance in other words issue on which claim of assessee is accepted we find rarely a discussion by the AO in his order.
Assessment records must speak on non-speaking order:
In other words on issues and claims allowed, there is generally non- speaking order , although enquiry is made and assessee has satisfied the AO hence AO accepted claim.
In such situations it cannot be said that the AO has not made enquiry and has not applied his mind and has not taken a reasoned decision on matters for which no addition or disallowance has been made but no discussion is found in assessment order.
It is advisable that all documents filed before AO or any authority, should be filed through receiving section and acknowledgment must be obtained. This will help to establish that the AO made an enquiry and assessee had replied to the same.
In the assessment order AO make reference to the order sheets. Many discussions and proceedings take place before completion of assessment are noted in the order sheet. Therefore copy of order sheets are important and must be obtained. When a requisition is made by the AO verbally, a note should be prepared and while replying to the same, reference should be properly made to discussions and instructions of the officer to file such details and explanations.
Order sheets and noting of A/R and reference of verbally asked information in reply, etc. can be useful in further proceeding by way of revision, rectification and reassessment etc.
These can be important for preparing a reply to the show cause notice issued by authorities for rectification, revision, and reassessment.
Noting by Authorized Representatives A/R:
Clear noting by A/R of assessee about explanations made verbally can also be useful. Better practice is that after verbal discussion, a note about the same should be filed with the authority giving details of verbal explanations made. In case of need affidavit of A/R affirming about verbal discussions and submissions can be used.
Actions against officers for not enquiring:
In case in a revision proceedings or enhancement proceeding revenue challenges or take ground that the AO had not made proper enquiry, then it is desirable that first of all suitable action must be taken against such officer, he must be asked as to why he did not make an enquiry. In case documents suggesting an enquiry made are available then the AO must be asked why he did not made a reference of the same and why he did not made a speaking order allowing claim of assessee.
In view of author, enquiry from AO must be precondition for passing an order of enhancement or revision against assessee.
Records must speak in case of non-speaking order:
When assessee is able to shows that the AO made enquiry, and assessee made replies, then there should not be enhancement or revision merely because the AO did not pass a speaking order while allowing relief or other claims of assessee.
In such cases also an enquiry and action against officer who did not pass a speaking order must be considered a precondition before any other proceeding is initiated against the AO.
By: CA DEV KUMAR KOTHARI - March 18, 2017
Discussions to this article
Nice article Sir. This is practical issue highlighted in the article. Thanks.